4 fresh ways investors can play the stock market during a software apocalypse
Brendan McDermid/Reuters
- Tech stocks were slammed this week as new fears of AI disruption swept Wall Street.
- Some analysts highlighted the rotation as a moment to identify specific AI-exposed winners.
- Here are some ways investors can play the latest rotation in the stock market.
After the chaos of a software-led sell-off that bled into techs stocks at large and dragged the broader market, here are a few strategies from Wall Street pros that might help you navigate the next meltdown.
The tech-heavy Nasdaq Composite , despite Friday's comeback. The iShares Expanded Tech-Software Sector ETF is down more the 12% in the same period.
But the market rotation is on, and analysts say this week's plunge isn't the end of the bear market. Instead, it is a moment to assess your approach and position for the next big swings.
Here are four investing strategies from Wall Street experts for investors navigating the latest rotation in stocks.
1. Ride the rotation into "old economy" sectors
Piper Sandler analysts highlighted that the tech sell-off marks a rotation into "old economy" plays, like cyclical and value sectors.
"The bull market is intact; however, it's not being led by the popular Tech and Growth favorites of investors. Instead, new momentum and leadership are emerging in cyclical and value sectors—Energy, Industrials, Materials, Staples, and Banks," they said.
All four sectors have gained, with energy and consumer staples seeing the stronger returns, while the tech sector plummets.
Goldman Sachs analysts called the downturn a retreat into "real economy" industries.
"The investor search for insulation from AI disruption risk has accelerated the ongoing cyclical rally," the wrote.
2. Consider the "perfect" AI bubble hedge
Bank of America strategists outlined what they say is the "perfect hedge" against an AI bubble.
The analysts, who said that high valuations in the tech sector can't be ignored, flagged what they call "transition" investing as the "perfect" AI bubble hedge.
As part of this strategy, they listed four ways to "invest in AI, without investing directly in AI": Electrification, infrastructure & grid expansion, metals, and defense.
3. Find the AI winners for the near term
The sell-off is an opportunity to separate the winners and losers of the AI trade, Futurum Group CEO and chief analyst Daniel Newman told Business Insider.
Newman outlined the framework that he's using to identify the winners among AI stocks.
He's looking for companies that are seeing returns on AI spending, building their own chips, monetizing AI for enterprise customers, and exploring physical AI. He highlighted Amazon, Microsoft, Alphabet, ServiceNow, Palantir, and Tesla.
"Companies need to show that the $470+ billion the hyperscalers are spending this year is generating returns. Those that do will be rewarded," Newman wrote.
4. An enduring tech bull says double down and buy the dip
Wedbush's Dan Ives is among Wall Street's biggest tech bulls, so it's comes as no surprise that his tech sell-off playbook is to buy the dip.
Ives said the tech weakness is nothing more than a "garage sale" for tech stocks.
"Is AI a headwind in the near-term for software? YES!...however, the magnitude of this software sell-off is a major head scratcher and is factoring in an Armageddon scenario for the sector that is far from reality in our view," he wrote amid the week's rout.
The analyst named five tech stocks investors should think about buying at a discount: Microsoft, Palantir, Snowflake, Salesforce, and CrowdStrike.